Abstract

References (33)

Citations (18)

Using the URL or DOI link below will
ensure access to this page indefinitely

Based on your IP address, your paper is being delivered by:

New York, USA

Processing request.

Illinois, USA

Processing request.

Brussels, Belgium

Processing request.

Seoul, Korea

Processing request.

California, USA

Processing request.

If you have any problems downloading this paper,please click on another Download Location above, or view our FAQFile name: SSRN-id621461. ; Size: 487K

You will receive a perfect bound, 8.5 x 11 inch, black and white printed copy of this PDF document with a glossy color cover. Currently shipping to U.S. addresses only. Your order will ship within 3 business days. For more details, view our FAQ.

Quantity:Total Price = $9.99 plus shipping (U.S. Only)

If you have any problems with this purchase, please contact us for assistance by email: Support@SSRN.com or by phone: 877-SSRNHelp (877 777 6435) in the United States, or +1 585 442 8170 outside of the United States. We are open Monday through Friday between the hours of 8:30AM and 6:00PM, United States Eastern.

Two-Sided Platforms: Pricing and Social Efficiency

This paper models two-sided market platforms, which connect third-party suppliers (developers) of many different products and services to users who demand a variety of these products. From a positive perspective, our model provides a simple explanation for the stark differences in platform pricing structures observed across a range of industries, including software for computers and an increasing number of electronic devices, videogames, digital media, etc. We show that the optimal platform pricing structure shifts towards making a larger share of profits on developers when users have a stronger preference for variety and also when there is uncertainty with respect to the availability, or a limited supply, of third-party (high-quality) products. From a normative perspective, we show that the increasingly popular public policy presumption that open platforms are inherently more efficient than proprietary ones - in terms of induced product diversity, user adoption and total social welfare - is not justified in our framework. The key welfare tradeoff is between the extent to which a proprietary platform internalizes business-stealing, product diversity and indirect network effects and the two-sided deadweight loss it creates through monopoly pricing.